Door-to-door insurance deal makes sense

For both shareholders and policyholders of Refuge and United Friendly, yesterday's merger looks like a win, win deal. It was also, perhaps, an inevitable one, for even among the C1 and D social classes from which the two companies draw most of their customers, life assurance has become a distinctly unfashionable thing. As a consequence, the pressure for consolidation and cost-cutting is on as never before.

Over the next couple of years the combined company plans to cut its workforce by about 25 per cent. Most of the benefit of that will go to policyholders. But there will be a lot left for shareholders too. Add that to the immediate benefits of the release of orphan assets and the effect of the merger will be to lift dividends by 35 per cent for Refuge shareholders and more than 50 per cent for investors in United Friendly. As the cost cuts begin to flow through, there will be more to follow.

The economies of scale to be had by merging in this sector of the market - which involves door-to-door collection of premiums, often in cash - are plainly substantial, but the same sort of logic applies throughout the life assurance industry. There are too many life assurance companies, supporting too many sales teams, chasing too small a market. Despite this, some of the direr predictions made a couple of years back at the time of commission disclosure - that the number of life insurers would halve by the end of the century through mergers and closures - are not coming to pass.

Many of the mutuals are digging in their heels and refusing to contemplate either takeover or merger. In the interests of consumer choice and competition, this is perhaps a good thing. If the deals that are creeping through live up to expectations, however, the refuseniks may be forced to rethink their position. The smaller player is going to have to be something quite exceptional to survive in the intensely competitive market place that promises to develop.